The Treasury has confirmed the triple lock will be upheld.
This means the basic state pension, new state pension and pension credit will be uprated in line with average earnings growth of 8.5%.
In his Autumn Statement today (22 November), chancellor Jeremy Hunt said the measure will “support pensioners across the UK” with the cost of living.
The statement document, published following the speech, confirmed the new full state pension will increase from £203.85 per week in 2023-24 to £221.20 per week in 2024-25.
This is a rise of £17.35 per week, or £902.20 a year, if a pensioner receives 52 weeks of state pension.
The triple lock was introduced in 2010 by the Conservative-Liberal Democrat coalition government in recognition that the real value of the basic state pension had fallen over many years.
It is a policy commitment whereby the government raises the state pension annually in line with the increase in prices or average earnings, or by 2.5% — whichever is highest.
Average wage growth between May to July 2023 hit 8.5%, according to figures published by the Office for National Statistics in September.
The rise took into account one-off public sector bonuses, which some pensions experts have expressed concern that these “distorted” the earnings growth figure.
There was speculation ahead of today’s statement that the chancellor may adjust down the prescribed rise for April to the excluding-bonuses rate of 7.8%, to save some money for the Treasury.
The news that the lock will remain untouched has received mixed reaction.
Some warn failing to downgrade or scrap the triple lock will be too expensive for the Treasury.
Others, on the other hand, say retaining the triple lock as it was a good decision by Hunt.
Hymans Robertson partner Paul Waters believes the increased income that it provides to pensioners during the cost-of-living crisis will have been “desperately needed”.
He added that changes to the triple lock, or the state pension, should not be made in a “piecemeal way”.
“In a period of relatively high inflation and interest rates, financial metrics and benefits shouldn’t be looked at in isolation,” argues Waters.
“Short-term decisions like suspending the triple lock aren’t a simple fix to the challenge of managing high levels of public spending and the ageing population.
“It needs a long-term solution, so, once the state pension is at a more meaningful level for the pensioners relying on it, the mechanism of ensuring fair but affordable increases must be addressed.”
Waters insists that “deep-rooted reforms” are needed, which consider the interaction of pension savings, tax, and other benefits including care.
Evelyn Partners head of tax Sian Steele says the news will be “very welcome” to those receiving or about to receive the state pension at a time of rising living costs.
“With an election on the horizon, the political consequences of tinkering with the triple lock might have figured in the chancellor’s calculations,” she says.
“Whether the state pension can be increased in the same way over the long term alongside an ageing population is another question.
“With the inclusion of bonuses in the earnings element of the triple lock, many in the Treasury are probably lamenting a missed opportunity to save the public purse some extra outlay.”
Steele says that adjusting down the prescribed rise for April to 7.8% would “inevitably have attracted criticism” and might not have saved a huge amount for the public purse.
But, she says, it would arguably have been a “sensible alteration”.
“The surprise is more that successive governments have allowed bonuses to be included in the calculation, as they are volatile and something that only a small proportion of the working population benefit from – and this year’s figure was particularly distorted by a one-off NHS deal,” says Steele.
“It’s also not clear why the inflation and earnings growth elements of the triple lock are taken from one month and three months respectively, rather than longer periods that would give a more stable and accurate picture.”
Not everyone is enthused by today’s announcement.
Curtis Banks pensions technical manager Caitlin Southall says it is “disappointing” not to see reform to the triple lock policy.
“The cost of this year’s increases was £11bn, with the policy retained for another year at least, costing the Treasury and taxpayers an additional £2bn.
“The policy isn’t sustainable with the current workforce footing the cost of a policy they won’t benefit from.
“Advisers will need to consider that the increase could push some pensioners into a higher rate of tax if they have any other income, savings or assets, which may generate a need for further tax planning for those affected.”
Regardless of today’s announcement, the bigger question, asks Royal London director of policy Jamie Jenkins, is what should happen to the triple lock and the state pension in the longer term.
If left as it is, it will get to the point where it is “completely unaffordable” and unfair to working people.
“It was always meant as a temporary measure,” he tells Money Marketing. He says there will come a point when it’s no longer sustainable.
AJ Bell head of retirement policy Tom Selby agrees, arguing that the lock is “both generous and entirely aimless”.
He argues that rather than putting in place a coherent plan to increase the value of the state pension in real terms, the triple lock “randomly ratchets up” the state pension depending on earnings growth and inflation at a specific point in time each year.
“An independent review with cross-party support feels like the only way to break the hold the triple-lock has on discussion about the future of the state pension,” he says.
“Politicians need to be brave enough to kick-off an honest debate about what the state pension is aiming to deliver in retirement, how it should look over the long-term and the associated costs.
“Without that, we risk remaining in a triple-lock-induced Groundhog Day where the only real question is whether or not that policy will be retained.”
Fidelity International head of platform product policy James Carter says the debate about the future of the triple lock as a formula for determining the annual increase to the state pension will “likely persist”.
“Economic volatility and issues of cross-generational fairness will continue to force difficult political and fiscal debate as we race towards a general election in 2024,” he says.
Analysis by the Institute for Fiscal Studies illustrated that, in applying the higher of the increase in prices and wages, the state pension has increased more quickly than it would if either measure had been used individually.
“The policy intention when the triple lock was originally put in place was to address the perceived level of developing pensioner poverty over time,” says Carter. “It wasn’t simply an annual revaluation formula.”
He says now is the time to consider the right and stable basis for the future of the UK state pension so consumers have certainty.
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